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Copper: Another Week, Another Gain – How Long Will It Continue?

By Jim Williams

Copper started the week out on a positive note Monday, marking the second straight month of gains on tight supply and hopes of solid demand from China and an improving economy back here in the states.

“The stimulus measures of the past three months are really working and having a positive impact on the overall economy,” Reuters said in a report. On the other hand, bankers are realizing they will most likely face more risks in lending to those companies who use metals such as copper as collateral, mainly due to the ongoing investigation over a suspected fraud at the Qingdao Port in Shandong Province.

The recent turmoil at Qingdao prompted Metal Bulletin to conduct a poll on the topic:

37% of respondents believe there will be more restrictions on financing, and/or the availability of letters of credit
14% believe it will be more expensive to borrow
6% believe western banks will withdraw from commodities lending
29% believe all three of these consequences are likely
14% of those polled said they believe there will be no long term repercussions and the issue will remain localized to Qingdao

Regardless of the results, Chinese bankers are expected to tighten lending to such copper-backed enterprises. In that case, more copper in the bonded inventory warehouses should flow into the market, because the enterprises have to sell it to obtain cash. According to a report from China Nonferrous Metals News (CNMN) that will put pressure on the copper market in the following months this year.

TD Securities said copper could also weaken in the third quarter from “overbought” levels, particularly since the market is entering a period of seasonally slow summer demand. 

“While it is true that demand driven by China and a recovering U.S. will grow and that primary supply/demand fundamentals will tighten alongside a drop in inventories, our estimates show that these are unlikely to improve so much as to move copper prices above $7,000 (per metric ton) on a sustained basis,” said analysts with TDS. 

As if manufacturers and distributors of wire and cable don’t have enough trouble figuring out which way copper prices will move next there are the threats of strikes, flooded mines and political unrest in Chile or Peru, two of the world’s largest copper producers, or unexpected swings in demand by China, that often send copper pricing into a frenzy.

We will keep an eye on the impact around the globe and keep you updated as long as there is news to report.

Related Links
Metal Bulletin
TD Securities
Copper Advance

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